Manufacturers’ Glut Is Good for Buyers

Too many cars

This is a great time to be both a new-car buyer and a used-car shopper. Market conditions are perfect for great deals.

The Old Gray Lady (or as non-journalists call it, The New York Times) did an article recently on how the current record-breaking sales figures for automobiles are bad news for the manufacturers. However, here at CarGurus we know those numbers are good for consumers, and here are three reasons why.

Strong Supply
As reported by Business Insider, car sales have hit record numbers. Right now manufacturers are on pace to sell 17.4 million vehicles in 2016. But the problem is it’s not necessarily the right mix of cars.

Carmakers are increasing fleet sales, which isn’t a bad thing for consumers. It means the equivalent used cars sell for less, because fleet sales hurt resale value.

A lot of these fleet sales end up in rental-car fleets, too. Those cars get driven lots of miles in a couple of years and then get sold. That affects the used-car market by increasing supply. Also, with almost one-third of new vehicles being sold as leases, there is a steady stream of relatively low-mileage used cars hitting dealership lots.

Strong supply makes it a buyers’ market for both new and used cars.

Great Loan Terms
A company called Black Book did a survey among auto lenders, and it shared some of the highlights with CarGurus. Two-thirds of lenders expect interest rates to remain at their current low levels. Also—and this is great news for those with less-than-stellar credit—lenders will expand their credit eligibility criteria.

Something else they will do is start financing older vehicles. That means less-expensive used cars, typically the bailiwick of buy-here, pay-here dealers that charge high interest rates.

What does it mean for you as a consumer? You should not have much trouble getting a loan. However, resist the temptation to stretch out those monthly payments. A full quarter of car loans are now more than 72 months, or about 6 years, with some up to 7 years.

That makes for low monthly payments, but it also puts you at risk. According to one study, a $31,000 car will be worth about $11,000 after 5 years. That means it will have lost 65 percent of its value through depreciation, with about a third of that drop coming after the first year. By year 6, it will probably lose another 8 percent, and it could be worth a lot less than the balance of your loan if something happens.

A good rule of thumb is if you can’t pay off a new car in 5 years, you can’t afford it. With used cars you shouldn’t have more than a 4-year loan.

Small Cars
In the market for a small car? It’s definitely a buyer’s market. According to a list compiled by 24/7.com, the 2015 Cadillac ELR and the Honda Insight take an average of over 200 days to sell. The Dodge Avenger is pretty close at 194 days, and the 2015 Fiat 500L and 2015 Cadillac ATS each approach the 150-day mark.

What vehicles are going to be tough to get a deal on? 24/7.com says these are the five fastest selling vehicles and how long they sit on dealer lots: 2016 Subaru Outback, 16 days; 2016 Honda HR-V, 17 days; 2016 Toyota Highlander, 18 days; 2016 Mercedes-Benz GT vehicles, 18 days; and, 2016 BMW i8, 19 days.

-Keith Griffin

Find Certified Pre-Owned Cars and Used Cars in your area at CarGurus.

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